Tom Alexander has an opportunity to purchase any of the investments shown in the following. The...

Tom Alexander has an opportunity to purchase any of the investments shown in the following. The purchase price, the amount of the single cash inflow, and is year of receipt are given for each investment. Which purchase recommendations would you make, assuming that Tom can earn 10% on his investment. Investment A: today price—$18000, single cash inflow— $30000, year of receipt —5 Investment B: today price—$600, single cash inflow— $3000, year of receipt —20 Investment C: today price—$3500, single cash inflow— $10000, year of receipt —10 Investment D: today price—$1000, single cash inflow— $15000, year of receipt —40

A. Investment C and D

B. Investment B and C

C. Investment A and B

D. Investment A and C

Solutions

Expert Solution

Investment-A
Cash inflow	30000
Multiply: PVF at 10% for 5th year	0.620921
Present value of inflow	18627.63
Less: Investment	-18000
NPV		627.63

Investment-B:
Cash inflow	3000
Multiply: PVF at 10% for 20th year	0.148644
Present value of inflow	445.932
Less: Investment	-600
NPV		-154.068

Investmentt-C
Cash inflow	10000
Multiply: PVF at 10% for 10th year	0.385543
Present value of inflow	3855.43
Less: Investment	-3500
NPV		355.43

InvestmentD
Cash inflow	15000
Multiply: PVF at 10% for 40th year	0.022095
Present value of inflow	331.425
Less: Investment	-1000
NPV		-668.575

Thus, Only Investments A and C are getting returns at 10%

Answer is D. Investment A and C

jeff jeffy answered 3 weeks ago

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